A breath of fresh air for the US Treasury's first interim FEOC guidance! But here's where it gets controversial...
The Treasury's recent release (February 12th) has shed light on some crucial provisions regarding FEOC, which were expanded under the One, Big, Beautiful Bill Act (OBBBA) last summer. These provisions essentially limit US companies' access to clean energy tax credits if they have certain ties to Chinese firms.
The guidance primarily focuses on 'Material Assistance' safe harbor provisions, which outline the permissible proportion of FEOC-exposed components in US clean energy projects seeking tax credits. The Treasury has stated that project developers and manufacturers can use existing domestic content safe harbor tables to calculate these costs, indicating a 'substantially similar' approach to the Inflation Reduction Act (IRA) provisions.
The real game-changer here is the reliance on existing safe harbor tables. This means US companies face less stringent supply chain requirements than initially anticipated. The domestic content table covers solar modules, cells, and other assembly components, but notably excludes solar wafers, ingots, and polysilicon.
Crux, a clean energy tax credit financing firm, explains that the safe harbor allows taxpayers to trace costs with a level of detail outlined in the IRS's domestic content tables, with additional rules to account for procurement and tracing realities. This is a far cry from an impractical framework that would require tracing subcomponents and raw materials to individual facility-eligible components.
For projects seeking the investment tax credit (ITC) or production tax credit (PTC), Crux highlights that this guidance provides significant compliance relief, eliminating the need for deeper upstream tracing. Similarly, for solar manufacturers aiming for the 45X Advanced Manufacturing Credit, the guidance indicates a straightforward evaluation process, focusing only on direct suppliers or own production of constituent materials.
Hall, an industry expert, commented, 'We're still processing the guidance, but it seems to align with expectations and doesn't create any unforeseen obstacles to FEOC compliance. The interim safe harbor rules appear to offer a clear path for project owners to qualify for the ITC.'
It's important to note that these guidelines don't apply to projects that were safe-harbored before January 1, 2026. Experts believe that many PV and BESS projects were safe-harbored in 2025, thus avoiding the FEOC compliance burden.
While the Treasury has promised more guidance and regulations in the future, some questions remain unanswered regarding FEOC restrictions. The OBBBA introduced 'effective control' measures, where companies could be designated as 'Foreign-influenced entities' if they grant control to a 'Specified Foreign Entity'. This control could be through contract agreements, influence over timelines or operations, or even IP licensing agreements.
The new guidance provides some clarity on 'effective control', as Crux explains: 'The notice highlights that this definition includes licensing agreements for intellectual property with respect to qualified facilities entered into or modified on or after July 4, 2025. This is a crucial clarification, as licensing agreements post this date qualify as effective control, even if they don't meet other prohibited provisions.'
Even before the guidance, the threat of FEOC restrictions has already caused shifts in the US solar industry. A Crux survey in December revealed that US solar companies weren't waiting for official guidance before assessing their procurement and compliance with expected FEOC rules. There have been discussions about developers and buyers choosing to ignore FEOC and sacrifice tax credits for faster, cheaper, and more readily available products that may infringe on guidelines.
On the manufacturing front, we've seen ownership changes likely tied to FEOC and the Trump administration's protectionist stance. Chinese manufacturers Trina Solar and JA Solar sold module production facilities to US companies, while Canadian Solar restructured its manufacturing business to take direct ownership of US assets from its Canadian headquarters, reducing exposure to its manufacturing subsidiary, CSI Solar.
Most recently, Vietnam-based Boviet Solar has committed to US solar manufacturing, despite reports of its Chinese parent company considering a sale.
To delve deeper into the FEOC guidance, check out Crux's blog here: [insert link]
